Economic theory defines price as a balance point between demand and supply in a market. But AliExpress dropshipping is a simple and easy to start business, where entrepreneurs are looking for a more practical approach, just interested in a better way to establish prices at online stores. How to choose the right numbers and earn money? Should they end “99”? So our aim today is to generate pricing numbers keeping in mind your profit.
How to Calculate Dropshipping Store Prices
The first number you know starting to figure out prices for your dropshipping store, is the wholesale price witch you buy your products for. How much can you increase it? Consider your overheads and margin.
Price = the wholesaler or manufacturer price + your cost + margin
The expenses are all costs you pay for your store organization
- shipping costs
- returns
- branding materials
- website maintenance
- your time on the orders processing (or your employe’s salary)
Notice that margin is not equal to the cost of your time in the last line. As a businessman or businesswoman your aim is to gain some more money than just your hourly payment.
Total business revenue is also influenced by volume of sales (which is a result of your marketing efforts), but we are going to talk about pricing. Decide, what markup to apply to your product (for example, 10%, 25% or 200%) and calculate the final price using one of the strategies and tactics below.
Fixed Markup on Cost
You decide what profit margin you expect and add this percent to the cost of every product. For example, profit margin is 10%, you order a product from AliExpress for $5, and spend $4 on shipping, branding and other expenses. Your product price sums
($5 + $4) + 10% = $9 + 10% = $9 + $0.9 = $9.9
Fixed markup can be added in percentage or in dollars. Let’s say you have set profit margin $2, so you plus $2 to any product.
($5 + $4) + $2 = $9 + $2 = $11
Using both variants you can easily sum up your profit for any product in your store, for any order you receive or for your monthly sales. If you fix markup by dollar, it seems a bit easier to calculate. If you fix margin by percentage, you spray your markup proportionally for cheap and expensive products. And it is interesting to compare to the next strategy.
Tiered Markup on Cost
Just like fixed markup strategy you set estimated margin to products in your store. And also you divide them into categories, establishing low margin percent for expensive items and a high one for low-cost items. For example,
$5 products get 60% markup (price = $8)
$100 products get 10% markup (price = $110)
This strategy is based on simple thought that people buy more expensive products rarely and more carefully scan the prices while they feel easier about cheap goods and readily add them to the cart. This observation helps dropshippers to make profit from selling some high-priced goods and the more the better low priced.
Of course, you can set the markup in percent and in dollars, similarly.
Manufacturer Suggested Retail Price
This strategy means that the producing company made all the calculations and suggested optimal market price. Fixed or tiered markup has been included already, and a dropshipper from AliExpress have no need to count it.
Often stores use this suggested price, relying that customers will find the same everywhere. Occasionally some stores can rise the price, in hopes of their strong brand or being an exclusive seller in their location. Sometime they even lower the price as much as they get a discount from the manufacturer.
Pricing Tactics
Besides the general strategy of making money from your store, you can use tactics and tricks that help you sell more and better.
Featured product pricing is a variation of tiered markup on costs, that we mentioned before. Establish minimal AliExpress dropshipping price for most attractive products to catch your customers and show them good accessories ready to put in their cart. As an entrepreneur, you plan ahead your assortiment and compose it with complementary products, such as audio players and headphones, organizers and special stickers for them, 3D pens and plastic filaments. Create product sets that’s price is less than the items purchased separately. It is also named price bundling or product bundling.
Decoy pricing involves some web design because you need to show 3 products together and 2 of them of equal price, though one is observably better than another. This comparison pushes customers to choose the more attractive product. This tactic is practiced for rather expensive, high-margin products that generate good profit.
When you go to the supermarket and see $9.99 or $9.95 instead of $10, it is psychological or odd pricing. Offline and online retailers successfully use the illusion of better price. It is an effective psychological trigger. A minor distinction in pricing can make a big difference in sales. You can get this terminal “9” by your margin calculation, just like our first case, you can drop $0.01 or add 0.99 to you price.
Discount pricing. From time to time stores have to offer unsold goods or warehouse stock balance, but this story is not about AliExpress dropshipping price, as dropshippers do not hold warehouse. The tactic for them is always to show artificially high-priced goods and a significant discount.
No matter how you set the high price, carefully calculate the actual one with margin for your store. Otherwise, you will get no revenue. So use the fixed, tiered markup, or manufacturer’s price and then raise it as you like.
An easy way for this tactic is to offer discounts straight and always. A bit more time taking way — to spread coupons and announce specials, collecting your customers’ emails and encouraging them to repeat purchases.
Free shipping. A dropshipping business permanently has shipping costs while consumers desire free delivery. So entrepreneurs meet the expectations and offer free shipping adding the postage expenses to the product price.
To hold your prices not higher than your competitors, check the average number of items in a purchase at your website and divide the shipping cost proportionally.
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